The Importance of Financial Inclusion

Financial Inclusion is defined by The World Bank as giving individuals and businesses access to useful and affordable financial products and services that have the ability to meet their needs in a way that is both responsible and sustainable. These products and services primarily refer to transactions, payments, savings, credit and insurance – all of which are typically taken for granted in more economically developed countries. In more developed countries, the notion of being ‘unbanked’ is associated with those who do so voluntarily, rather than involuntarily, whereas in developing and emerging economies, those who are ‘unbanked’ are often so not through choice.

For developing economies, financial inclusion is a significant issue, with a variety of barriers often preventing access to financial services such as high account fees, rural areas being far away from physical banking services and a lack of suitable products for those on lower incomes. The World Bank (2016) estimates that 2 billion adults worldwide do not have a basic bank account. Added to this, results suggest that there is a gender gap, too, with 59% of men reporting having an account in 2014, compared to only 50% of women. For global development institutions the theme of financial inclusion is becoming more and more prominent, with the recent Sustainable Development Goals (taking over from the previous Millennium Development Goals) citing financial inclusion as an enabler for 7 of the 17 goals.

FinTech is one of the hottest trends worldwide in recent years, with Innovate Finance reporting $15.2bn of investment up to Q3 2016 – a 27% increase on 2015. Whilst FinTech companies across the US and Europe have brought a wealth of services for the ‘overbanked’, there is huge potential for companies in emerging economies to drive real change by empowering the ‘underbanked’. ‘The Foundations of Financial Inclusion’ report for The World Bank shows that having a bank account has a positive impact on both savings and female empowerment, as well as significantly supporting micro, small and medium-sized enterprises (MSMEs). Large banks often see these demographics as too costly to provide for, which is why micro-finance institutions such as Grameen Bank and Kiva have arisen. The accelerated growth of technology, however, represents an opportunity greater than ever for providing financial services to those currently excluded.

The continuing trend of increased mobile ownership, and even smartphone ownership, in developing countries is an example of how FinTech can break down the barriers to financial services. The Pew Research Centre (2016) reports that smartphone ownership in emerging countries is rising rapidly, climbing from a median of 21% in 2013 to 37% in 2015. Smartphones present an opportunity to remotely access financial services without the need to travel far distances from rural areas, as well as to capture data which can give greater insight to provide suitable products and services.

FinTech has the potential to widen the reach of financial services, and serve a demographic that is often not seen as worthwhile to large corporate banks. Over the next few months I will be travelling around Asia, and during this time I will seek to identify FinTech companies that are innovating in the area of financial inclusion and to report on trends in this topic. I hope you’ve enjoyed reading my first blog post, and I look forward to any feedback or questions you may have.




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